Tough times ahead for tech startups due to Covid-19

Monday May 11 2020

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By CHRISTINE KASEMIIRE

Kampala- As investment in Africa technology startups had started gaining momentum, it is now expected to drop because of the effects of coronavirus.

AfricArena, an African tech ecosystem accelerator, in its State of Tech Innovation report 2020 estimates a drop in investment to $1.8b (Shs6.8trillion), down from over $2b (about Shs7.5 trillion) received in 2019. This is equivalent to a $200m (about Shs760b) fall in investment.

“Based on the momentum of $343m in the first quarter of 2020 which factored a 27 per cent year on year growth, we expect deal activity to fall sharply in quarter two and quarter three of 2020, primarily fueled by venture capitalist (VC) investor doing refinancing deals on their portfolio,” the report reads in part. KPMG Venture pulse quarter one 2020 report revealed that venture capital backed companies raised $61b across 4260 deals during the period.

However, the report also noted that VC investors will as a result of the coronavirus pandemic become risk averse as they wait to see its impact.

Already, Uber halted operations in Uganda following the President’s directive banning private transport around the country. Reluctance of VC investors has prompted fears globally on the sustainability of startups especially in regard to financing during the pandemic. “With Covid-19 basically slamming the Initial Public Offering (IPO) market door shut at least for the short-term, some companies might require bridge funding to get through the market turbulence. Companies in the US could be particularly at risk given the upcoming presidential election,” the report says.

New investment areas The report also reveals new possible areas of investment for VCs that are likely to culminate from the crisis. For instance, it says, companies focused on digital health, pharmaceuticals and life sciences, Artificial Intelligence modeling to predict the spread of diseases, medtech among others.

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In addition, companies focused on productivity solutions, logistics and delivery, education technology, and online entertainment could also see some investment, along with cyber security and data protection companies given the significant increase in online services. Partech, a global venture capital fund, reported that Africa in 2019 attracted over $2b in investment of which $38m (Shs140b) went to Ugandan startups.

SafeBoda, which is one of the beneficiaries of VC investment in Uganda, was among those financed last year with an undisclosed amount of money.

Cross border investments such as those in Uganda, the report says, could be affected by travel limitations which will also create delays in fundraising rounds because of the need for new processes by investors to undertake due diligence.